Reverse mortgages can be a costly way to tap home equity.(MONEY)

REVERSE MORTGAGES, which convert a home's equity to ready cash, can help older homeowners who have few or no other assets or major sources of income. But some lenders imply those loans can enhance a lifestyle, not just be a lifeline.

In an ad for Senior Lending Network, actor Robert Wagner pitches reverse mortgages as he stands next to a collectible car. On the Golden Gateway Financial Web site, Grace, a borrower, asks, "Why not have my cake and eat it too?"

But relying on a reverse mortgage too much or too early in life--say, in your 60s--can create future trouble. If home prices continue to fall, borrowers could face shortfalls later.

"It can be a godsend to those without other assets or equity and basic needs to address," says Don Redfoot, author of a recent study on reverse mortgages published by the AARP's Public Policy Institute. But for younger borrowers, he notes, "meeting their needs in the future could become dicey." His study found just 58 percent of reverse-mortgage borrowers said their loans completely met their needs.

How reverse mortgages work

If you're at least 62 and have significant equity in your primary residence, you're eligible for a reverse mortgage. You can take a lump sum, a line of credit, a fixed monthly payment, or a combination. The mortgage amount is based on your age and your home's location and value. The older you are, the more you can borrow.

Reverse mortgages backed by the federal government, which account for at least 90 percent of the market, are called Home Equity Conversion Mortgages. Private lenders market HECMs; two lenders sell their own products. The recently enacted Housing and Economic Recovery Act raised the maximum for those loans to $417,000 for a single-family home in most areas, and perhaps more in higher-cost communities. The change is due by the end of the year.